Cheap stocks can definitely be risky, but if you do your homework, you can snag some winners

When it comes to investing, it’s definitely smart to focus on high-quality companies. But this does not mean you should avoid more speculative plays. Low-price, cheap stocks can represent tremendous opportunities.

Take Tandem Diabetes Care (NASDAQ:TNDM) as an example. At the beginning of the year, the company’s prospects looked bleak, with the stock price at $2.50. But the company would go on to receive favorable FDA rulings and its new diabetes product saw its sales jump. The result was that TNDM stock climbed to $33!

Granted, this type of move is rare. And there needs to be quite a bit of research and some luck. You also need a strong stomach. In the case of TNDM stock, if you had purchased the shares a year earlier, you would have suffered a steep decline. Yes, timing is critical.

So then, what are some cheap stocks that are worth a look right now? Which ones could provide nice gains? Well, here’s a look at seven:

Cheap Stocks to Buy: Aurora Mobile (JG)

Aurora Mobile (NASDAQ:JG), which is a Chines mobile big data platform, launched its IPO a few weeks ago. But unfortunately, Wall Street wasn’t impressed. JG stock has since fallen about 32%.

Yet the selling may be an overreaction. The fact is that JG has put together a massive database, which includes 925 million MAUs (Monthly Active Users). This has come from providing a suite of tools for mobile app developers like instant messaging, push notifications and analytics.

JG uses sophisticated AI and machine learning to get actionable insights. Just some of the applications include ad targeting, financial risk management and location-based intelligence.

And yes, the growth ramp has been robust. Last year, JG posted a sizzling 305% spike in revenues — to $45.4 million — and the customer base went from 1,168 to 2,263.

The company is also making significant headway in reducing its net losses. For example, in Q2 it was only about $1.8 million.

Cheap Stocks to Buy: YogaWorks (YOGA)

For the year so far, YogaWorks (NASDAQ:YOGA) has not provided a Zen experience for investors. Instead, it’s been rather stressful. YOGA stock is off about 32%.

Despite this, company’s management has still been making some good moves. They have involved adjustments in the marketing, experimentation with classes andschedules and price increases. In the latest quarter, there was a 21% increase in visitors.

Another bright spot is MyYogaWorks.com, which is a source of digital subscriptions. Keep in mind that YOGA has been leveraging the asset with corporate accounts, such as Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). The employees get discounted memberships for their wellness program.

Finally, YOGA has remained committed to its M&A strategy. The opportunity is enormous in the yoga space as there are over 33,000 studios in the US.

Cheap Stocks to Buy: Houghton Mifflin Harcourt (HMHC)

Houghton Mifflin Harcourt Company (NASDAQ:HMHC) is certainly an iconic company. Founded in 1832, it has published global brands like Curious George, Webster’s New World Dictionary, Cliffs Notes and The Lord of the Rings. The company’s authors have won 10 Nobel Prizes and 48 Pulitzer Prizes.

But lately, HMHC has been under quite a bit of pressure. The year-to-date return is an awful -40%.

It is important to keep in mind that the school book industry is in the midst of a cyclical downturn because there have been fewer book adoptions from big states.

But the situation should get better in the next couple years. California, Texas and Florida plan to make purchases next year. HMHC estimates the opportunity at a hefty $3.2 billion.

And this will likely not be a one-time thing. HMHC is predicting that 2020 should be another strong year, with spending of over $3 billion. And this does not include the impact from the open territory states.

For the most part, HMHC is rethinking its business. Instead of focusing on publishing, the firm is transforming itself into a learning company. This means that student outcomes are paramount. This is the kind of approach that should give HMHC a competitive edge in closing large contracts.

Cheap Stocks to Buy: I.D. Systems (IDSY)

I.D. Systems (NASDAQ:IDSY) is a top provider of machine-to-machine technologies, which help with securing, tracking and managing cars, industrial vehicles and cargo. The company has over 500 customers like Ford (NYSE:F), Walmart (NYSE:WMT) and Home Depot (NYSE:HD).

IDSY’s systems help improve safety, efficiency and productivity. There is also a portfolio of 50 patents.

Even though IDSY is in a red-hot market, Wall Street has mostly ignored it. But this does look like a mistake. In the latest quarter, revenues jumped by 38% to $14.8 million on a year-over-year basis and the sequential increase was 11%. A key driver was a major deal with Avis Budget Group.

But the growth may accelerate. The company has been investing aggressively in its product line. To this end, there are plans to move into the mid and small industrial truck market with a telematics system called PowerFleet. There are also three new products for 3G and LTE migrations for the trailer, containers and chassis markets.

Cheap Stocks to Buy: Fitbit (FIT)

The consumer hardware business can be brutal, as seen with Fitbit (NYSE:FIT). Despite efforts to bolster its product line, nothing seems to work. FIT stock is down more than 80% since its IPO.

So can the company get its mojo back? Actually, I think it can. Just look at the Versa smartwatch, which has been a winner. In fact, the CEO has noted that the company will return to growth and profitability in the second half of this year.

FIT also has been working hard to get a piece of the healthcare market. While it’s been a slog, the company has been making progress. The Fitbit Health solutions platform is integrated with over 100 health plans in the U.S.

Finally, FIT stock is fairly cheap, with the price-to-sales ratio at 0.88X. The company also has $580 million in cash and no long-term debt — with the market cap at $1.33 billion.

Cheap Stocks to Buy: Trivago (TRVG)

Not long ago, Trivago (NASDAQ:TRVG) was a high-growth company. But as of now, the situation has reversed in a big way. For the year so far, TRVG is off about 38%.

The main issue: the company is having a tough time monetizing its traffic.

While this is a tough situation, TRVG is taking swift action. Essentially, there is a focus on profitability, regardless of the volumes. For example, in the latest quarter, the company raised its profitability targets for all its marketing channels.

Although, perhaps the biggest attraction of TRVG stock is that it is selling at a steep discount — in terms of the price-to-sales ratio, which is at only 1.26X — to other rivals. In other words, even a few pieces of good news is likely to perk up the share price.

Cheap Stocks to Buy: Groupon (GRPN)

The local e-commerce market is massive but it is tough to crack. Groupon (NASDAQ:GRPN), however, is definitely not giving up.

The company, whose mission is to create a “daily habit in local commerce,” is generating positive EBITDA and cash flows (there is $662.9 million in the bank). A big part of this has been a tough restructuring for the past few years.

More importantly, Groupon remains a top player in its category, ranked No. 5 for e-commerce brands in the US. There are 49.3 million customers, with 70% of transactions come from smartphones.

Although, the end-game for GRPN may be a sale of the company. There was even some buzz recently about this possibility, with Alibaba (NYSE:BABA) and IAC/InterActive (NASDAQ:IAC) as potential suitors. While betting on a deal can be dicey, GRPN could prove to be a great way to get good footprint in the US market and put some pressure on Amazon.com (NASDAQ:AMZN).

Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. As of this writing, he did not hold a position in any of the aforementioned securities.